Reversal of input tax credit in the case of non-payment of consideration -180 Days Applicability of Interest @24% – GST Council Recommendations – GST Audit – Auditor Qualified Opinion – Non-availability of the Notification for the Exemption -Taxpayers disagreement on payment of Interest – GST Annual Return for the FY 2017/18 – Annual Return Due on 30.06.2019

Query: ABC is a registered taxable person procured certain goods from a vendor in which he availed GST Input, but not paid the consideration to the vendor within 180 days from the date of invoice. In such case, whether tax payer need to pay interest on input is question? If not, is there any recommendation of the GST Council is exists in this regard is question? Further if there is no such notification/order is exists on account of the GST Council recommendations; is Interest is payable is still big question? What is the role of a GST auditor in this regard if there is a disagreement of a taxpayer in relation to payment of interest in-spite of the Hon’ble High Court of Telangana comments on GST Council Recommendations in the case of M/s  Megha Engineering & Infrastructures Ltd Vs CCT & Others - 2019 (4) TMI 1319 - TELANGANA AND ANDHRA PRADESH HIGH COURT, Dated 18-4-2019 is question? 

Answer: As per the provisions of the GST Act read with Rules, though GST is a MODVAT Mechanism, the taxpayer continue to hold GST input subject to certain conditions, in which one of the condition that the taxpayer need to discharge payment to the his vendor within 180 days from the date of the invoice. If there is a failure of payment of invoice on the recipient part irrespective of his contractual obligations with the vendor; then as per the Sec 16(2) of the CGST Act read with 37 of the CGST Rules, the taxpayer (i.e. recipient in the given case) need to reverse such input to the extent of such non-payment of invoices along with interest in his output liability without fail.

In this regard after getting representations of the Trade, The GST Council relaxed payment of interest in his 28^th council meeting and issued a press note as below dated 21^st July 2018 vide serial No 10:

“In case the recipient fails to pay the due amount to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be reversed, but liability to pay interest is being done away with”

However in-spite of the above recommendation of the GST Council and its press note, the Notification/order for the exemption of payment of interest is still due under the respective GST Act’s till the date.

Considering the Comments of the  Hon’ble High Court of Telangana in the Case of M/s  Megha Engineering & Infrastructures Ltd Vs CCT & Others - 2019 (4) TMI 1319 - TELANGANA AND ANDHRA PRADESH HIGH COURT, Dated 18-4-2019 in relation to GST Council Recommendations, where Court  held that the recommendations of the GST Council are still on paper, hence declined to interpret the proposed amendment of the GST Council recommendations on GST Act and upheld the demand of interest on Gross liability by ignoring the net tax liability, though  we are in view of that

• The GST Act is a MODVAT Mechanism, where the taxpayer discharging tax on value addition by availing GST input; in which the Government already recovered such tax from the supplier point.
• GST Technical glitches on the GST Common Portal
• Non-availability of the GST Returns for inward supplies in Form GSTR-2 and Final Return in Form GSTR-3
• Availability of the Temporary Returns in Form GSTR-3B
• Non-availability of NEFT  facilities by Banks on account  of Public Holidays, in which the taxpayer bound to file the returns,  if the due date of the filing of return falls on Sunday or any other public holidays
• The difference between “filed” and “submitted” with reference to Form GSTR-3B in relation to offset of the GST liability with Cash and GST Input
• Minor Procedural laps on the taxpayer’s part and availability of the GST input.

Hence considering the above view of the Hon’ble High Court and non-availability of the exemption notification or order in this regard, the taxpayer need to reverse such GST input along with the applicable interest @ 24%, since the taxpayer didn’t discharge payment within 180days from the date of invoice.

If there is a disagreement of the taxpayer with the GST auditor in relation to the interest payment, then the auditor is bound to qualify his opinion   to such extent with no option.

Hence considering the due date of the GST Annual Return for the Financial year 2017/18 as 30.06.2019, its highly advisable to the Government to issue such notification/order at the earliest, since it saves the taxpayer as well as the auditors role with reference to the Compliance of the GST Act to such extent.

Further one may consider this info only for the education purpose and requested them to proceed with further detailed analysis, since as on date (i.e.; 25.04.2019) we are in impression that there is no such notification/order is exist  as per our personal view.

Source – GST Council Recommendations–28^th meeting of the GST Council – Press Note on GST Law Amendments- Dated –July 21^th 2018.

Best Regards,

CA Narendra Kumar Thotamsetty,

Hand Phone: +91-99163-22238

Hyderabad.